Exclusion Clause

Joe claims that Betty’s Drycleaning Service (BDS) is responsible to compensate him for the loss of his dinner jacket and the damage to his trousers. He is claiming $500 as the replacement cost of a new suit.

BDS, through its new owner, Bruce, is denying responsibility for this loss and damage due to an exclusion clause on the docket handed to Joe (as usual) when he left his items to be dry cleaned. Bruce also points to a sign at the back of the shop which also excludes liability.

This question is concerned with the contents of the contract, in particular, the incorporation of terms into a contract. Sometimes terms are included in a contract which one of the parties denies having notice of, especially if these terms are contained in a document that is separate from the main contract. The rules in this area broadly depend on whether the document was signed or unsigned.

When Joe left his clothing at BDS he was not asked to sign a document, but was instead handed a docket containing an exclusion clause which BDS are now relying on to exempt them from liability. A docket is not the sort of document on which a party would expect to find contractual terms (Chapleton v Barry; Causer v Browne and Thrornton v Shoe Lane Parking).

For the exclusion clause to be a term of the contract, BDS must show that it was brought to the other contracting party’s attention at or before the time the contract was entered into (Olley v Marlborough Court). BDS will point to the large sign at the back of the shop with the same words printed on it. How visible the sign is to customers is a question of fact. Does “back of the shop” mean behind the counter? Is it far away and generally concealed by racks of clothing? If BDS can prove that the sign was displayed in such a way that it had obvious contractual significance then it could be a term. Joe would be deemed to have constructive notice of the term.

BDS could also claim that Joe should have been aware of the existence of the exclusion clause from a prior course of dealing. The court said in Olley v Marlborough Court that had the Olleys been regular guests at the hotel they would be deemed to know about the hotel’s exclusion of liability for loss or theft of guest’s belongings. Joe had always taken his dry cleaning to BDS. Provided they can still show they have done everything reasonably sufficient to bring the exclusion to the attention of customers in the first place, the clause is a term of the contract.

If the exclusion clause is a term of the contract, the next issue is to determine what it excludes liability for. Exclusion clauses usually exclude liability for loss caused by one party’s breach of contract. Very definite words are required to exclude liability for negligence as well. Where a clause is ambiguous it will be interpreted contra proferentum, that is, against the party seeking to rely on it.

The clause in this case is wide enough to cover breach of contract and negligence where it refers to “any loss or damage…howsoever…caused”. The tear to Joe’s trousers is something that BDS have excluded liability for, therefore, Joe is precluded from claiming damages for this loss.

In relation to the missing jacket Joe will argue that the exclusion clause did not cover this type of loss; that is, “Bruce Ocker” was not authorised to give Joe’s jacket to any person claiming to be Joe’s “friend” without a docket. This is the application of the four corners rule. An exclusion clause excludes liability in the performance of the contract, not for loss or damage on account of acts done outside the contemplated performance of the contract (Sydney City Council v West and TNT v May & Baker). The act of giving Joe’s jacket to a stranger was not contemplated by the parties when they entered into the contract, therefore, BDS cannot rely on the exclusion clause to exclude its liability for the loss of the jacket.

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